Numerical Questions Solutions

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Numerical Questions Solutions
1. Following is the Balance Sheet of Raj Oil Mills Limited as at March 31, 2017. Calculate current ratio.
Particulars
₹
I. Equity and Liabilities
1. Shareholders’ Funds
Share capital
7,90,000
b) Reserves and surplus
35,000
2. Current Liabilities
Trade Payables
72,000
Total
8,97,000
II. Assets
1. Non-current Assets
Fixed assets
– Tangible assets
7,53,000
2. Current Assets
a) Inventories
55,800
b) Trade Receivables
28,800
c) Cash and cash equivalents
59,400
Total
8,97,000
Current Assets
=
Inventories + Trade Receivables + Cash and cash equivalennts
=
₹ 55,800 + ₹ 28,800 + ₹ 59,400
=
₹ 1,44,000
Current Liabilities
=
Trade Payables
=
₹ 72,000
Current Ratio
=
{\dfrac{\text{Current Assets}}{\text{Current Liabilities}}}
=
{\dfrac{₹~1,44,000}{₹~72,000}}
=
{\dfrac{2}{1}}
=
2:1

2. Following is the Balance Sheet of Title Machine Ltd. as at March 31, 2017.
Particulars
₹
I. Equity and Liabilities
1. Shareholders’ Funds
a) Share capital
24,00,000
b) Reserves and surplus
6,00,000
2. Non-current liabilities
Long-term borrowings
9,00,000
3. Current liabilities
a) Short-term borrowings
6,00,000
b) Trade payables
23,40,000
c) Short-term provisions
60,000
Total
69,00,000
II. Assets
1. Non-current assets
Fixed assets
– Tangible assets
45,00,000
2. Current Assets
a) Inventories
12,00,000
b) Trade receivables
9,00,000
c) Cash and cash equivalents
2,28,000
d) Short-term loans and advances
72,000
Total
69,00,000
Calculate Current Ratio and Liquid Ratio.
Calculation of Current Ratio:
Current Assets
=
Inventories + Trade Receivables + Cash and cash equivalents + Short-term loans and advances
=
₹ 12,00,000 + ₹ 9,00,000 + ₹ 2,28,000 + ₹ 72,000
=
₹ 24,00,000
Current Liabilities
=
Short-term borrowings + Trade payables + Short-term provisions
=
₹ 6,00,000 + ₹ 23,40,000 + ₹ 60,000
=
₹ 30,00,000
Current Ratio
=
{\dfrac{\text{Current Assets}}{\text{Current Liabilities}}}
=
{\dfrac{₹~24,00,000}{₹~30,00,000}}
=
{\dfrac{4}{5}}
=
0.8:1
Calculation of Quick Ratio:
Quick Assets
=
Trade Receivables + Cash and cash equivalents + Short-term loans and advances
=
₹ 9,00,000 + ₹ 2,28,000 + ₹ 72,000
=
₹ 12,00,000
Quick Ratio
=
{\dfrac{\text{Quick Assets}}{\text{Current Liabilities}}}
=
{\dfrac{₹~12,00,000}{₹~30,00,000}}
=
{\dfrac{2}{5}}
=
0.4:1

3. Current Ratio is 3.5 : 1. Working Capital is ₹ 90,000. Calculate the amount of Current Assets and Current Liabilities.
We know that
Current Ratio
=
{\dfrac{\text{Current Assets}}{\text{Current Liabilities}}}
Given that
Current Ratio
=
{\dfrac{3.5}{1}}
{⇒ \dfrac{\text{Current Assets}}{\text{Current Liabilities}}}
=
\dfrac{3.5}{1}
⇒ Current Assets
=
3.5 × Current Liabilities
Also Given that
Working Capital
=
₹ 90,000
We know that
Working Capital
=
Current Assets – Current Liabilities
⇒ Current Assets – Current Liabilities
=
₹ 90,000
⇒ 3.5 × Current Liabilities – Current Liabilities
=
₹ 90,000
⇒ 2.5 × Current Liabilities
=
₹ 90,000
⇒ Current Liabilities
=
{\dfrac{₹~90,000}{2.5}}
=
{\dfrac{₹~90,000}{\left(\dfrac{5}{2}\right)}}
=
{₹~90,000 × \dfrac{2}{5}}
=
₹ 36,000
∴ Current Assets
=
3.5 × Current Liabilties
=
3.5 × ₹ 36,000
=
₹ 1,26,000
The answer is
Current Assets
=
₹ 1,26,000
Current Liabilities
=
₹ 36,000

4. Shine Limited has a current ratio 4.5 : 1 and quick ratio 3 : 1; if the inventory is ₹ 36,000, calculate Current Liabilities and Current Assets.
Given that
⇒ Current Ratio
=
4.5:1
{⇒ \dfrac{\text{Current Assets}}{\text{Current Liabilities}}}
=
{\dfrac{4.5}{1}}
⇒ Current Assets
=
4.5 × Current Liabilities
Also given that
⇒ Quick Ratio
=
3:1
{⇒ \dfrac{\text{Quick Assets}}{\text{Current Liabilities}}}
=
{\dfrac{3}{1}}
⇒ Quick Assets
=
3 × Current Liabilities
We know that
Quick Assets
=
Current Assets – Inventories
⇒ Inventories
=
Current Assets – Quick Assets
=
₹ 4.5 × Current Liabiliies – 3 × Current Liabilities
=
1.5 × Current Liabilities
⇒ ₹ 36,000
=
{\dfrac{3}{2} × \text{Current Liabilities}}
⇒ Current Liabilities
=
{\dfrac{2}{3} × ₹~36,000}
=
₹ 24,000
∴ Current Assets
=
4.5 × Current Liabilities
=
4.5 × ₹ 24,000
=
₹ 1,08,000
The answer is
Current Liabilities
=
₹ 24,000
Current Assets
=
₹ 1,08,000

5. Current Liabilities of a company are ₹ 75,000. If current ratio is 4:1 and Liquid Ratio is 1 : 1, calculate value of Current Assets, Liquid Assets and Inventory.
Given that
Current Liabilities
=
₹ 75,000
Current Ratio
=
4:1
{⇒ \dfrac{\text{Current Assets}}{\text{Current Liabilities}}}
=
\dfrac{4}{1}
⇒ Current Assets
=
4 × Current Liabilities
=
4 × ₹ 75,000
=
₹ 3,00,000
Liquid Ratio
=
1:1
{⇒ \dfrac{\text{Liquid Assets}}{\text{Current Liabilities}}}
=
\dfrac{1}{1}
⇒ Liquid Assets
=
Current Liabilities
=
₹ 75,000
∴ Inventory
=
Current Assets – Liquid Assets
=
₹ 3,00,000 – ₹ 75,000
=
₹ 2,25,000
The answer is
Current Assets
=
₹ 3,00,000
Liquid Assets
=
₹ 75,000
Inventory
=
₹ 2,25,000

6. Handa Ltd. has inventory of ₹ 20,000. Total liquid assets are ₹ 1,00,000 and quick ratio is 2 : 1. Calculate current ratio.
Given that
Quick Ratio
=
2:1
{⇒ \dfrac{\text{Liquid Assets}}{\text{Current Liabilities}}}
=
\dfrac{2}{1}
⇒ Liquid Assets
=
2 × Current Liabilities
⇒ ₹ 1,00,000
=
2 × Current Liabilities
⇒ 2 × Current Liabilities
=
₹ 1,00,000
⇒ Current Liabilities
=
{\dfrac{₹~1,00,000}{2}}
=
₹ 50,000
Given that
Inventory
=
₹ 20,000
∴ Current Assets
=
Liquid Assets + Inventories
=
₹ 1,00,000 + ₹ 20,000
=
₹ 1,20,000
∴ Current Ratio
=
{\dfrac{\text{Current Assets}}{\text{Current Liabilities}}}
=
{\dfrac{₹~1,20,000}{₹~50,000}}
=
\dfrac{12}{5}
=
2.4:1

7. Calculate debt-equity ratio from the following information:
Total Assets
₹ 15,00,000
Current Liabilities
₹ 6,00,000
Total Debts
₹ 12,00,000
We know that
Debt-Equity Ratio
=
{\dfrac{\text{Long-term Debts}}{\text{Shareholders' Funds}}}
Long-term Debts
=
Total Debts – Current Liabilities
=
₹ 12,00,000 – ₹ 6,00,000
=
₹ 6,00,000
Shareholders’ Funds
=
Total Assets – Total Debts
=
₹ 15,00,000 – ₹ 12,00,000
=
₹ 3,00,000
So,
Debt-Equity Ratio
=
{\dfrac{\text{Long-term Debts}}{\text{Shareholders' Funds}}}
=
{\dfrac{₹~6,00,000}{₹~3,00,000}}
=
\dfrac{2}{1}
=
2:1

8. Calculate Current Ratio if:
Inventory is ₹ 6,00,000; Liquid Assets ₹ 24,00,000; Quick Ratio 2 : 1.
We know that
Quick Ratio
=
{\dfrac{\text{Liquid Assets}}{\text{Current Liabilities}}}
Given that
Quick Ratio
=
2:1
{⇒ \dfrac{\text{Liquid Assets}}{\text{Current Liabilities}}}
=
{\dfrac{2}{1}}
⇒ Current Liabilities
=
{\dfrac{\text{Liquid Assets}}{2}}
=
{\dfrac{₹~24,00,000}{2}}
=
₹ 12,00,000
Now
Current Assets
=
Liquid Assets + Inventories
=
₹ 24,00,000 + ₹ 6,00,000
=
₹ 30,00,000
∴ Current Ratio
=
{\dfrac{\text{Current Assets}}{\text{Current Liabilities}}}
=
{\dfrac{₹~30,00,000}{₹~12,00,000}}
=
\dfrac{5}{2}
=
2.5:1

9. Compute Inventory Turnover Ratio from the following information:
Revenue from Operations
₹ 2,00,000
Gross Profit
₹ 50,000
Inventory at the end
₹ 60,000
Excess of inventory at the end over inventory in the beginning
₹ 20,000
We know that
Cost of Revenue from Operations
=
Revenue from Operations – Gross Profit
=
₹ 2,00,000 – ₹ 50,000
=
₹ 1,50,000
Inventory in the beginning
=
Inventory at the end – Excess of inventory at the end over inventory in the beginning
=
₹ 60,000 – ₹ 20,000
=
₹ 40,000
Average Inventory
=
{\dfrac{\text{Inventory in the beginning + Inventory at the end}}{2}}
=
{\dfrac{₹~40,000 + ₹~60,000}{2}}
=
{\dfrac{₹~1,00,000}{2}}
=
₹ 50,000
Inventory Turnover Ratio
=
{\dfrac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}}
=
{\dfrac{₹~1,50,000}{₹~50,000}}
=
3

10. Calculate following ratios from the following information:
(i) Current ratio (ii) Liquid ratio (iii) Operating Ratio (iv) Gross profit ratio
Current Assets
₹ 35,000
Current Liabilities
₹ 17,500
Inventory
₹ 15,000
Operating Expenses
₹ 20,000
Revenue from Operations
₹ 60,000
Cost of Revenue from operation
₹ 30,000
(i) Calculation of Current Ratio:
Current Ratio
=
{\dfrac{\text{Current Assets}}{\text{Current Liabilities}}}
=
{\dfrac{₹~35,000}{₹~17,500}}
=
{\dfrac{2}{1}}
=
2:1
(ii) Calculation of Liquid Ratio:
We know that
Liquid Assets
=
Current Assets – Inventory
=
₹ 35,000 – ₹ 15,000
=
₹ 20,000
∴ Liquid Ratio
=
{\dfrac{\text{Liquid Assets}}{\text{Current Liabilities}}}
=
{\dfrac{₹~20,000}{₹~17,500}}
=
1.14:1
(iii) Calculation of Operating Ratio:
Operating Ratio
=
{\dfrac{\text{(Cost of Revenue from Operations + Operating Expenses)}}{\text{Net Revenue from Operations}} × 100}
=
{\dfrac{(₹~30,000 + ₹~20,000)}{₹~60,000} × 100}
=
{\dfrac{₹~50,000}{₹~60,000} × 100}
=
83.3%
(iv) Calculation of Gross Profit Ratio:
Gross Profit
=
Revenue from Operations – Cost of Revenue from Operations
=
₹ 60,000 – ₹ 30,000
=
₹ 30,000
Gross Profit Ratio
=
{\dfrac{\text{Gross Profit}}{\text{Net Revenue from Operations}} × 100}
=
{\dfrac{₹~30,000}{₹~60,000} × 100}
=
\dfrac{1}{2} × 100
=
50%

11. From the following information calculate:
(i) Gross Profit Ratio (ii) Inventory Turnover Ratio (iii) Current Ratio (iv) Liquid Ratio (v) Net Profit Ratio (vi) Working Capital Ratio:
Revenue from Operations
₹ 25,20,000
Net Profit
₹ 3,60,000
Cost of Revenue from Operations
₹ 19,20,000
Long-term Debts
₹ 9,00,000
Trade Payables
₹ 2,00,000
Average Inventory
₹ 8,00,000
Liquid Assets
₹ 7,60,000
Fixed Assets
₹ 14,40,000
Current Liabilities
₹ 6,00,000
Net Profit before Interest and Tax
₹ 8,00,000
(i) Calculation of Gross Profit Ratio:
We have
Gross Profit
=
Revenue from operations – Cost of Revenue from Operations
=
₹ 25,20,000 – ₹ 19,20,000
=
₹ 6,00,000
So,
Gross Profit Ratio
=
{\dfrac{\text{Gross Profit}}{\text{Net Revenue of Operations}} × 100}
=
{\dfrac{₹~6,00,000}{₹~25,20,000} × 100}
=
23.81%
(ii) Calculation of Inventory turnover ratio:
Inventory Turnover Ratio
=
{\dfrac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}}
=
{\dfrac{₹~19,20,000}{₹~8,00,000}}
=
2.4 times
(iii) Calculation of Current Ratio:
We know that
Current Assets
=
Liquid Assets + Inventory
=
₹ 7,60,000 + ₹ 8,00,000
=
₹ 15,60,000
Current Ratio
=
{\dfrac{\text{Current Assets}}{\text{Current Liabilities}}}
=
{\dfrac{₹~15,60,000}{₹~6,00,000}}
=
\dfrac{2.6}{1}
=
2.6:1
(iv) Calculation of Liquid Ratio:
Liquid Ratio
=
{\dfrac{\text{Liquid Assets}}{\text{Current Liabilities}}}
=
\dfrac{₹~7,60,000}{₹~6,00,000}
=
\dfrac{1.27}{1}
=
1.27:1
(v) Calculation of Net Profit Ratio:
Net Profit Ratio
=
{\dfrac{\text{Net Profit}}{\text{Revenue from Operations}} × 100}
=
{\dfrac{₹~3,60,000}{₹~25,20,000} × 100}
=
\dfrac{14.28}{1}
=
14.29:1
(vi) Calculation of Working Capital Ratio:
Working Capital
=
Current Assets – Current Liabilities
=
Liquid Assets + Inventory – Current Liabilities
=
₹ 7,60,000 + ₹ 8,00,000 – ₹ 6,00,000
=
₹ 9,60,000
Working Capital Turnover Ratio
=
{\dfrac{\text{Net Revenue from Operations}}{\text{Working Capital}}}
=
{\dfrac{₹~25,20,000}{₹~9,60,000}}
=
{\dfrac{2.625}{1}}
=
2.625:1
12. Compute Working Capital Turnover Ratio, Debt Equity Ratio and Proprietary Ratio from the following information:
Paid-up Share Capital
₹ 5,00,000
Current Assets
₹ 4,00,000
Revenue from Operations
₹ 10,00,000
13% Debentures
₹ 2,00,000
Current Liabilities
₹ 2,80,000
Calculation of Working Capital Turnover Ratio:
Working Capital
=
Current Assets – Current Liabilities
=
₹ 4,00,000 – ₹ 2,80,000
=
₹ 1,20,000
Working Capital Turnover Ratio
=
{\dfrac{\text{Net Revenue from Operations}}{\text{Working Capital}}}
=
{\dfrac{₹~10,00,000}{₹~1,20,000}}
=
\dfrac{8.33}{1}
=
8.33:1
Calculation of Debt Equity Ratio:
Long-term Debts
=
13% Debentures
=
₹ 2,00,000
Shareholders’ Finds
=
Paid-up Share Capital
=
₹ 5,00,000
Debt Equity Ratio
=
{\dfrac{\text{Long-term Debts}}{\text{Shareholders' Funds}}}
=
{\dfrac{₹~2,00,000}{₹~5,00,000}}
=
\dfrac{0.4}{1}
=
0.4:1
Calculation of Proprietary Ratio:
Capital Employed
=
Shareholders’ Funds + Non-Current Liabilities
=
Paid-up Share Capital + 13% Debentures
=
₹ 5,00,000 + ₹ 2,00,000
=
₹ 7,00,000
Proprietary Ratio
=
{\dfrac{\text{Shareholders' Funds}}{\text{Capital Employed}}}
=
{\dfrac{₹~5,00,000}{₹~7,00,000}}
=
\dfrac{0.71}{1}
=
0.71:1
13. Calculate Inventory Turnover Ratio if:
Inventory in the beginning is ₹ 76,250, Inventory at the end is ₹ 98,500, Sales is ₹ 5,20,000, Sales Return is ₹ 20,000, Purchases is ₹ 3,22,250.
Cost of Revenue from Operations
=
Inventory in the beginning + Purchases – Inventory at the end
=
₹ 76,250 + ₹ 3,22,250 – ₹ 98,500
=
₹ 3,00,000
Average Inventory
=
{\dfrac{\text{(Inventory in the beginning + Inventory at the end)}}{2}}
=
{\dfrac{(₹~76,250 + ₹~98,500)}{2}}
=
{\dfrac{₹~1,74,750}{2}}
=
₹ 87,375
Inventory Turnover Ratio
=
{\dfrac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}}
=
{\dfrac{₹~3,00,000}{₹~87,375}}
=
\dfrac{3.43}{1}
=
3.43:1
Note: The sales data given in the problem is redundant. So, we can ignore it.
14. Calculate Inventory Turnover Ratio from the data given below:
Inventory in the beginning of the year
₹ 10,000
Inventory at the end of the year
₹ 5,000
Carriage
₹ 2,500
Revenue from Operations
₹ 50,000
Purchases
₹ 25,000
Cost of Revenue from operations
=
Inventory at the beginning + Purchases + Carriage – Inventory at the end
=
₹ 10,000 + ₹ 25,000 + ₹ 2,500 – ₹ 5,000
=
₹ 32,500
Average Inventory
=
{\dfrac{\text{(Inventory at the beginning + Inventory in the end)}}{2}}
=
{\dfrac{(₹~10,000 + ₹~5,000)}{2}}
=
\dfrac{₹~15,000}{2}
=
₹ 7,500
Inventory Turnover Ratio
=
{\dfrac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}}
=
{\dfrac{₹~32,500}{₹~7,500}}
=
\dfrac{4.33}{1}
=
4.33:1
15. A trading firm’s average inventory is ₹ 20,000 (cost). If the inventory turnover ratio is 8 times and the firm sells goods at a gross profit of 20% on sales, ascertain the gross profit of the firm.
Assume
Sales Revenue from Operations
=
x
Given that
Inventory Turnover Ratio
=
8
{⇒ \dfrac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}}
=
8
⇒ Cost of Revenue from Operations
=
8 × Average Inventory
=
8 × ₹ 20,000
=
₹ 1,60,000
Also given that
Gross Profit
=
20% of Sales
⇒ Sales Revenue from Operations – Cost of Revenue from operations
=
0.2 × Sales Revenue from Operations
⇒ x – Cost of Revenue from Operations
=
0.2x
{⇒ x - 0.2x}
=
Cost of Revenue from Operations
⇒ 0.8x
=
₹ 1,60,000
⇒ x
=
{\dfrac{₹~1,60,000}{0.8}}
=
{\dfrac{₹~1,60,000}{\left(\dfrac{8}{10}\right)}}
=
{₹~1,60,000 × \dfrac{10}{8}}
=
₹ 2,00,000
∴ Gross Profit
=
0.2 × ₹ 2,00,000
=
₹ 40,000
16. You are able to collect the following information about a company for two years:
2015-16
2016-17
Trade receivables on Apr. 01
₹ 4,00,000
₹ 5,00,000
Trade receivables on Mar. 31
₹ 5,60,000
Stock in trade on Mar. 31
₹ 6,00,000
₹ 9,00,000
Revenue from operations
(gross profit is 25% on cost of Revenue from operations)
₹ 3,00,000
₹ 24,00,000
Calculate Inventory Turnover Ratio and Trade Receivables Turnover Ratio
Calculation of Inventory Turover Ratio:
Let
Cost of Revenue from Operations
=
x
We know that
Revenue from Operations
=
Cost of Revenue from Operations + Gross Profit
=
x + 25% of x
=
{x + \dfrac{25}{100} × x}
=
\dfrac{100x + 25x}{100}
=
\dfrac{125}{100}x
⇒ x
=
{\text{Revenue from Operations} × \dfrac{100}{125}}
=
{₹~24,00,000 × \dfrac{100}{125}}
=
₹ 19,20,000
Average Inventory
=
{\dfrac{\text{(Inventory at the beginning + Inventory at the end)}}{2}}
=
{\dfrac{(₹~6,00,000 + ₹~9,00,000)}{2}}
=
\dfrac{₹~15,00,000}{2}
=
₹ 7,50,000
Inventory Turnover Ratio
=
{\dfrac{\text{Cost of Revenue from Operations}}{\text{Gross Profit}}}
=
{\dfrac{₹~19,20,000}{₹~7,50,000}}
=
2.56 times
Calculation of Trade Reveivable Turnover Ratio:
As the credit sales are not given, let’s assume that all the sales are done on credit. So,
Net Credit Sales
=
₹ 24,00,000
Average Trade Receivables
=
{\dfrac{\text{(Trade Receivables in the beginning + Trade Receivables at the end)}}{2}}
=
{\dfrac{(₹~5,00,000 + ₹~5,60,000)}{2}}
=
{\dfrac{₹~10,60,000}{2}}
=
₹ 5,30,000
Trade Receivables Turnover Ratio
=
{\dfrac{\text{Net Credit Sales}}{\text{Average Trade Receivables}}}
=
{\dfrac{₹~24,00,000}{₹~5,30,000}}
=
4.53:1
Note: Not enough data to calculate the ratios for 2015-16. Only the ratios for 2016-17 are calculated.
17. From the following Balance Sheet and other information, calculate following ratios:
(i) Debt-Equity Ratio (ii) Working Capital Turnover Ratio (iii) Trade Receivables Turnover Ratio
Balance Sheet as at March 31, 2017
Particulars
Note
No.
₹
I. Equity and Liabilities:
1. Shareholders’ funds
a) Share capital
10,00,000
b) Reserves and surplus
7,00,000
c) Money received against share warrants
2,00,000
2. Non-current Liabilities
Long-term borrowings
12,00,000
3. Current Liabilities
Trade payables
5,00,000
Total
36,00,000
II. Assets
1. Non-current Assets
Fixed assets
– Tangible assets
18,00,000
2. Current Assets
a) Inventories
4,00,000
b) Trade Receivables
9,00,000
c) Cash and cash equivalents
5,00,000
Total
36,00,000
Additional Information: Revenue from Operations ₹ 18,00,000
(i) Calculation of Debt-Equity Ratio
Long-term Debts
=
Long-term Borrowings
=
₹ 12,00,000
Shareholders’ Funds
=
Share Capital + Reserves and Surplus + Money received against share warrants
=
₹ 10,00,000 + ₹ 7,00,000 + ₹ 2,00,000
=
₹ 19,00,000
Debt-Equity Ratio
=
{\dfrac{\text{Long-term Debts}}{\text{Shareholders' Funds}}}
=
{\dfrac{₹~12,00,000}{₹~19,00,000}}
=
0.63:1
(ii) Calculation of Working Capital Turnover Ratio:
Current Assets
=
Inventories + Trade Receivables Cash and cash equivalents
=
₹ 4,00,000 + ₹ 9,00,000 + ₹ 5,00,000
=
₹ 18,00,000
Current Liabilities
=
Trade payables
=
₹ 5,00,000
Working Capital
=
Current Assets – Current Liabilities
=
₹ 18,00,000 – ₹ 5,00,000
=
₹ 13,00,000
Working Capital Turnover Ratio
=
{\dfrac{\text{Net Revenue from Operations}}{\text{Working Capital}}}
=
{\dfrac{₹~18,00,000}{₹~13,00,000}}
=
1.38 times
(iii) Calculation of Trade Receivables Turnover Ratio:
Trade Receivables Turnover Ratio
=
{\dfrac{\text{Net Credit Sales}}{\text{Average Trade Receivables}}}
=
{\dfrac{₹~18,00,000}{₹~9,00000}}
=
2 times
Note: All the revenue from operations is assumed to be from credit sales.
18. From the following information, calculate the following ratios:
i)
Liquid Ratio
ii)
Inventory turnover ratio
iii)
Return on investment
₹
Inventory in the beginning
50,000
Inventory at the end
60,000
Net Profit
2,17,900 1,15,000
10% Debentures
2,50,000
Revenue from operations
4,00,000
Gross Profit
1,94,000
Cash and Cash Equivalents
40,000
Money received against share warrants
20,000
Trade Receivables
1,00,000
Trade Payables
1,90,000
Other Current Liabilities
70,000
Share Capital
2,00,000
Reserves and Surplus
1,20,000
(Balance in the Statement of Profit & Loss)
i) Calculation of Liquid Ratio:
Liquid Assets
=
Cash and Cash Equivalents + Trade Receivables
=
₹ 40,000 + ₹ 1,00,000
=
₹ 1,40,000
Current Liabilities
=
Trade Payables + Other Current Liabilities
=
₹ 1,90,000 + ₹ 70,000
=
₹ 2,60,000
Liquid Ratio
=
{\dfrac{\text{Liquid Assets}}{\text{Current Liabilities}}}
=
{\dfrac{₹~1,40,000}{₹~2,60,00}}
=
54 times
ii) Inventory turnover ratio:
Cost of Revenue from Operations
=
Revenue from Operations – Gross Profit
=
₹ 4,00,000 – ₹ 1,94,000
=
₹ 2,06,000
Average Inventory
=
{\dfrac{\text{(Inventory in the beginning + Inventory at the end)}}{2}}
=
{\dfrac{(₹~50,000 + ₹~60,000)}{2}}
=
₹ 55,000
Inventory Turnover Ratio
=
{\dfrac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}}
=
{\dfrac{₹~2,06,000}{₹~55,000}}
=
3.75 times
iii) Calculation of Return on investment
Interest on Debentures
=
{₹~2,50,000 × \dfrac{10}{100}}
=
₹ 25,000
Net Profit before Interest and Tax
=
Net Profit + Interest on Debentures
=
₹ 1,15,000 + ₹ 25,000
=
₹ 1,40,000
Capital Employed
=
Share Capital + Reserves and Surplus + Money received against share warrants
=
₹ 2,00,000 + ₹ 1,20,000 + ₹ 20,000
=
₹ 3,40,000
Return on Investment
=
{\dfrac{\text{Profit before Interest and Tax}}{\text{Capital Employed}} × 100}
=
{\dfrac{₹~1,40,000}{₹~3,40,000} × 100}
=
41.17%
Note: Net Profit is assumed as ₹ 1,15,000 so that the return on investment matches with the answer.
19. From the following, calculate (a) Debt-Equity Ratio (b) Total Assets to Debt Ratio (c) Proprietary Ratio.
Equity Share Capital
₹ 75,000
Share application money pending allotment
₹ 25,000
General Reserve
₹ 45,000
Balance in the Statement of Profit & Loss
₹ 30,000
Debentures
₹ 75,000
Trade Payables
₹ 40,000
Outstanding Expenses
₹ 10,000

(a) Calculation of Debt-Equity Ratio:
Long-term Debts
=
Debentures
=
₹ 75,000
Shareholders’ Funds
=
Equity Share Capital + Share application money pending allotment + General Reserve + Balance in Statement of Profit & Loss
=
₹ 75,000 + ₹ 25,000 + ₹ 45,000 + ₹ 30,000
=
₹ 1,75,000
Debt-Equity Ratio
=
{\dfrac{\text{Long-term Debts}}{\text{Shareholders' Funds}}}
=
{\dfrac{₹~75,000}{₹~1,75,00}}
=
0:43:1
(b) Calculation of Total Assets to Debt Ratio:
Total Assets
=
Equity and Liabilities
=
Equity Share Capital + Share Application money Pending Allotment + General Reserve + Balance in the Statement of Profit & Loss + Debentures + Trade Payables + Outstanding Expenses
=
₹ 75,000 + ₹ 25,000 + ₹ 45,000 + ₹ 30,000 + ₹ 75,000 + ₹ 40,000 + ₹ 10,000
=
₹ 3,00,000
Long-term Debts
=
Debentures
=
₹ 75,000
Total Assets to Debt Ratio
=
{\dfrac{\text{Total Assets}}{\text{Long-term Debts}}}
=
{\dfrac{₹~3,00,000}{₹~75,000}}
=
4:1
Note: The total assets are directly not given in the problem. So, we’ve calculated the total of equity and liabilities which will be equal to the total assets in the balance sheet.
(c) Calculation of Proprietary Ratio:
The Shareholders’ funds and net assets are calculated above. So, we’ll use those values in this calculation.
Proprietary Ratio
=
{\dfrac{\text{Shareholders' Funds}}{\text{Net Assets}}}
=
{\dfrac{₹~1,75,000}{₹~3,00,000}}
=
0.58:1
20. Cost of Revenue from Operations is ₹ 1,50,000. Operating expenses are ₹ 60,000. Revenue from Operations is ₹ 2,50,000. Calculate Operating Ratio.
Operating Ratio
=
{\dfrac{\text{(Cost of Revenue from Operations + Operating Expenses)}}{\text{Net Revenue from Operations}} × 100}
=
{\dfrac{(₹~1,50,000 + ₹~60,000)}{₹~2,50,000} × 100}
=
{\dfrac{₹~2,10,000}{₹~2,50,000} × 100}
=
84%
21. Calculate the following ratio on the basis of following information:
(i) Gross Profit Ratio (ii) Current Ratio (iii) Acid Test Ratio (iv) Inventory Turnover Ratio (v) Fixed Assets Turnover Ratio
₹
Gross Profit
50,000
Revenue from Operations
1,00,000
Inventory
15,000
Trade Receivables
27,500
Cash and Cash Equivalents
17,500
Current Liablilites
40,000
Land & Building
50,000
Plant & Machinery
30,000
Furniture
20,000
(i) Calculation of Gross Profit Ratio:
Gross Profit Ratio
=
{\dfrac{\text{Gross Profit}}{\text{Net Revenue of Operations}} × 100}
=
{\dfrac{₹~50,000}{₹~1,00,000}}
=
50%
(ii) Calculation of Current Ratio:
Current Assets
=
Inventory + Trade Receivables + Cash and Cash Equivalents
=
₹ 15,000 + ₹ 27,500 + ₹ 17,500
=
₹ 60,000
∴ Current Ratio
=
{\dfrac{\text{Current Assets}}{\text{Current Liabilities}}}
=
{\dfrac{₹~60,000}{₹~40,000}}
=
1.5:1
(iii) Calculation of Acid Test Ratio:
Liquid Assets
=
Current Assets – Inventory
=
₹ 60,000 – ₹ 15,000
=
₹ 45,000
Acid Test Ratio
=
{\dfrac{\text{Liquid Assets}}{\text{Current Liabilities}}}
=
{\dfrac{₹~45,000}{₹~40,000}}
=
1.125:1
(iv) Calculation of Inventory Turnover Ratio:
Cost of Revenue from Operations
=
Revenue from Operations – Gross Profit
=
₹ 1,00,000 – ₹ 50,000
=
₹ 50,000
Average Inventory
=
₹ 15,000
Inventory Turnover Ratio
=
{\dfrac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}}
=
{\dfrac{₹~50,000}{₹~15,000}}
=
3.33 times
Note: As the inventory in the beginning and at the end is not given, the given inventory is assumed to be the average inventory.
(v) Calculation of Fixed Assets Turnover Ratio:
Net Fixed Assets
=
Land & Buildings + Plant & Machinery + Furniture
=
₹ 50,000 + ₹ 30,000 + ₹ 20,000
=
₹ 1,00,000
Fixed Assets Turnover Ratio
=
{\dfrac{\text{Net Revenue from Operations}}{\text{Net Fixed Assets}}}
=
{\dfrac{₹~1,00,000}{₹~1,00,000}}
=
1:1
22. From the following information calculate Gross Profit Ratio, Inventory Turnover Ratio and Trade Receivable Turnover Ratio.
Revenue from Operations
₹ 3,00,000
Cost of Revenue from Operations
₹ 2,40,000
Inventory at the end
₹ 62,000
Gross Profit
₹ 60,000
Inventory in the beginning
₹ 58,000
Trade Receivables
₹ 32,000
Calculation of Gross Profit Ratio:
Gross Profit Ratio
=
{\dfrac{\text{Gross Profit}}{\text{Net Revenue of Operations}} × 100}
=
{\dfrac{₹~60,000}{₹~3,00,000}}
=
20%
Calculation of Inventory Turnover Ratio:
Average Inventory
=
{\dfrac{\text{(Inventory in the beginning + Inventory at the end)}}{2}}
=
{\dfrac{₹~58,000 + ₹~62,000}{2}}
=
{\dfrac{₹~1,20,000}{2}}
=
₹ 60,000
∴ Inventory Turnover Ratio
=
{\dfrac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}}
=
{\dfrac{₹~2,40,000}{₹~60,000}}
=
4 times
Calculation of Trade Receivable Trunover Ratio:
Trade Receivable Turnover Ratio
=
{\dfrac{\text{Net Credit Revenue from Operations}}{\text{Average Trade Receivables}}}
=
{\dfrac{₹~32,000}{₹~3,00,000}}
=
9.375 times